Digital Finance Analytics (DFA) Blog – Page 29 – Digital Finance Analytics (DFA) Blog

Fed Holds, And Watches Consumers For Signs Ahead!

As expected, the US central bank’s policy-setting Federal Open Market Committee kept rates on hold following their latest meeting – in a target range of 5.25%-5.5%, a 22-year high. The decision is unanimous 12-0.

The S&P 500 index and Treasuries extended their rally while the dollar slipped after the announcement. Traders also marked down chances of another hike over the coming months.

Officials made minimal changes to the statement. One tweak was to upgrade their description of the pace of economic growth to “strong” from “solid” to reflect better economic data released since their September gathering.

They continue to leave the door open to another hike by repeating prior language on “determining the extent of additional policy firming that may be appropriate”.

They said the economy expanded at “strong pace in third quarter,” compared with prior description of recent “solid pace”; though job gains “have moderated since earlier in the year but remain strong,” after previously saying that hiring had slowed in recent months.

And they flagged that tighter financial and credit conditions” will likely to weigh on economy, after previously mentioning only “tighter credit conditions”; language could be seen as suggesting that the recent jump in long-term Treasury yields reduces the impetus for Fed to raise rates again.
“The extent of these effects remains uncertain,” the Fed said, repeating that it “remains highly attentive to inflation risks.”

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Digital Finance Analytics (DFA) Blog

Fed Holds, And Watches Consumers For Signs Ahead!

00:00 / 00:17:48

A Question Of Democracy: With Senator Gerard Rennick

I caught up with Queensland Senator Rennick, and discussed a range of important issues including the accountability and independence of the RBA, regional banking and the digital divide, the digital content bill, and finally, and importantly the role and effectiveness of democracy.

Gerard Rennick is an Australian politician who has been a Senator for Queensland since July 2019. He is a member of the Liberal National Party of Queensland and sits with the Liberal Party in federal parliament.

On 8 July 2023 at the LNP Annual Convention in Brisbane, Rennick lost preselection for the third position on the LNP’s senate ticket for the next federal election, after being narrowly defeated by Stuart Fraser, the party’s treasurer

https://en.wikipedia.org/wiki/Gerard_Rennick

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A Question Of Democracy: With Senator Gerard Rennick

00:00 / 00:35:29

DFA Live Q&A HD Replay: Tony Locantro: The Coming Storm

This is an edited edition of our latest live discussion with Tony Locantro from Alto Capital. Tony is an Investment Manager at Alto Capital in Perth Australia. He has been an active adviser specialising in ASX small cap companies in the mining, biotech and emerging industrial sectors. He was formerly in the NSW Police Force up until November 1998.

Tony has the knack of tell things as they are, warts and all.

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DFA Live Q&A HD Replay: Tony Locantro: The Coming Storm

00:00 / 01:28:15

Its Edwin’s Monday Evening Property Rant!

More from our Property Insider Edwin Almeida as we examine the latest data from the markets. Will international ructions impact the market, as sky-high migration continues? Will Canberra succeed in its latest property venture? Will agents “fix” commissions? And will Victoria be the epicentre of the next leg down?

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Digital Finance Analytics (DFA) Blog

Its Edwin's Monday Evening Property Rant!

00:00 / 01:02:53

Home Prices ”T’is But A Flesh Wound…”

The prospect of another interest rate rise on Melbourne Cup day has shaken buyers’ confidence, sending auction clearance rates to their lowest level in seven months, data from CoreLogic shows.

Preliminary results show 68.5 per cent of the reported auctions across the combined capital cities were successful, which is 2.3 percentage points lower than the previous week and weaker than the average for this time of the year.

It comes as the number of homes taken to auction soared to 3383, which is the largest volume since the week before Easter last year.

Tim Lawless, CoreLogic research director, said such a large number of auctions was always going to test the depth of buyer demand. “Basically, it has not passed the test as shown by the lower clearance rates, which lines up with renewed speculation that interest rates are about to go higher once again,” he said.

And as reported in the AFR, a build-up in home listings and worsening affordability slashed the rate of house price growth by a third to 1.9 per cent across the combined capital cities during the September quarter, a new report from Domain shows.

Nicola Powell, Domain’s chief of research and economics, said the pace of price increases would moderate further amid rising supply, but the prospect of another interest rate increase was unlikely to halt the broader upswing and reverse the earlier gains. We will see!

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Home Prices ”T’is But A Flesh Wound...”

00:00 / 00:09:36

The Volatility Game Continues…

Financial markets are bracing for what could be another momentous week, with a Federal Reserve meeting, U.S. employment data and earnings from technology heavyweight Apple Inc possibly setting the course for stocks and bonds the rest of the year.

So far October has lived up to its reputation for volatility, as a surge in Treasury yields and geopolitical uncertainty hitting stocks. The S&P 500 index is down 3.5% for the month, adding to losses that have left it over 10% off its late-July high.

Whether the ride remains rough for the rest of 2023 may depend in large part on the bond market. The Fed’s ‘higher for longer’ stance on interest rates and rising U.S. fiscal worries pushed the benchmark 10-year Treasury yield – which moves inversely to prices – to 5% earlier this month, the highest since 2007. Higher Treasury yields are seen as a headwind to stocks, in part because they compete with equities for buyers. It was little changed at 4.838% after crossing 5% earlier in the week.

Investors worry that yields could rise further if the Fed reinforces its hawkish message at the central bank’s Nov. 1 monetary policy meeting. Strong U.S. employment data next Friday could also be a catalyst for yields to rise if it bolsters the case for keeping rates elevated to cool the economy and prevent inflation from rebounding.

Investors are playing a “waiting game of how much does each economic data point need to increase to put another rate hike back on the table,” said Alex McGrath, chief investment officer for NorthEnd Private Wealth.

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The Volatility Game Continues...

00:00 / 00:18:54

APRA Hopeless On Branch Closures…

Journalist Dale Webster over at The Regional has rightly launched an attack on APRA, the banking regulator.

https://www.theregional.com.au/post/apra-bogged-in-a-data-mess-of-its-own-making

They released their annual points of presence data that showed an 11 per cent fall in bank branches nationally in 12 months. It triggered HEADLINES around Australia last week screamed out about bank closures. Channel Nine was one of many media outlets that picked up the story, reporting 424 branches had “shut their doors for the final time”.

As Dale writes, the problem is APRA never actually said that.

“The latest statistics show a further decline in bank branches in the year to 30 June 2023, with a reduction of 424 branches across Australia (11 per cent), including 122 branches (7 per cent) in regional and remote areas. This continues a trend that has seen branch numbers decline by 34 per cent in regional and remote areas, and 37 per cent overall, since the end of June 2017.”

What unsuspecting media did not pick up on was that among those 424 branches were a number of sites that had been stripped of branch status because they no longer provided the level of service required to be classified as such by law.

The doors are still very much open but they are among the growing number of banks that have no tellers and customers can only get cash from an ATM.

So we are left with what could be described as a bit of a situation, according to Dale. I think it is more deliberate, as APRA again manages to hide the real story – on this they have form, given their close alignment to the Banks. They are in my view hardly independent, nor an effective regulator.

Digital Finance Analytics (DFA) Blog

APRA Hopeless On Branch Closures...

00:00 / 00:05:53

Will The RBA Blink First?

On Melbourne Cup day we will get the next RBA cash rate decision. Michelle Bullocks testimony before the Senate this week was pretty vague – waiting for data, will update forecasts etc.

But as Christopher Joye writes in the AFR, following the material upside surprise to inflation in the September quarter, almost all economists and investors agree that the Reserve Bank of Australia should lift interest rates in November.

But participants worry that a concerted campaign to politically compromise Australia’s central bank may result in the RBA remarkably choosing not to seek to combat its existential inflation crisis.

This would be the latest in a chapter of accidents, with the RBA cutting rates too low, and stoking the economy via the Term Funding Facility, and Quantitative Easing. Their yield control attempts went wrong, and then they held rates way to low, promising no hike for years. And their forecasting is a disaster.

This is a central bank with a 4.1 per cent cash rate that is just a smidge above what it assesses to be the neutral rate of 3.8 per cent. And that is a cash rate that is 1.0 to 1.5 percentage points below peer rates in the US, Britain, Canada and New Zealand.

Even the RBA’s outgoing assistant governor Luci Ellis, who is now chief economist at Westpac, called a “hike” only days after she predicted that inflation would not be robust enough to warrant one.

In sum, we know the RBA should hike in November. Whether it actually does or not appears to now be a question of its ability to resist political interference.

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Will The RBA Blink First?

00:00 / 00:11:41

Are Equities Toast In The Higher For Longer World?

In my post yesterday, I highlighted the 4200 support level for the S&P 500 and the risks if that was breached. Well, today as the tech sector melted down it dragged the S&P 500 index under the 4,200 support level.

Rising Treasury yields and political gridlock in D.C. dominate financial headlines, but it was GOOGL’s poor results that became one straw too many, and the index shed another 1.4%.

And significantly, soaring U.S. Treasury yields are further boosting the appeal of bonds over stocks, deepening an already painful equity selloff while threatening to weigh on equity performance over the long term.

If earnings growth is squeezed as expected there are many stocks which are currently significantly overvalued – so perhaps the real message here is that individual stock-picking is back baby, rather than playing the index. Plus, there is always the risk of course Central Banks panic and cut rates hard into a recession, something which they have form on doing.

So, in fractious markets sometimes watching from the sidelines is the best move, until things shake out. Remember October is often the worst month for stocks across the year!

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Are Equities Toast In The Higher For Longer World?

00:00 / 00:10:24

Will The Inflation Shock Lead To An Interest Rate Hike?

Australia’s CPI inflation came in stronger than expected in the September quarter, with headline inflation rising 1.2% over the quarter versus 1.1% expected and 5.4 per cent annually, according to the latest data from the Australian Bureau of Statistics (ABS).

As noted by Justin Fabo from Macquarie group, “trimmed mean inflation in Q3 was MUCH stronger than the RBA’s August forecast…about 0.4ppts stronger on a year-ended basis”:

And as he notes. “Measures of the BREADTH of quarterly inflation ticked higher and broadly supports the signal from the trimmed mean.

It is also broad based, with“43% of the CPI basket by number rose at an annualised rate of at least 5% in Q3”,

This is going to put more pressure on the RBA to hike rates, potentially on Melbourne Cub day. This is especially because Annual inflation remains elevated, for a range of services such as vets, restaurant meals and hairdressers.

Annual inflation continues to rise for some service categories including rents, dental services and insurance, while inflation for holiday travel has more than halved in the past two quarters. Again, inflation is broad based, you cannot just blame, oil prices for example.

Now, in a speech today RBA Governor Michelle Bullock said “Our focus remains on bringing inflation back to target within a reasonable timeframe, while keeping employment growing. It is possible that this can be done with the cash rate at its current level but there are risks that could see inflation return to target more slowly than currently forecast. The Board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation. At the same time, the Board is mindful that growth in demand and the rate of inflation have been moderating, and that there are long lags in the transmission of monetary policy. The Board will receive several pieces of information before its next meeting that will be important for this assessment. This includes a full update of the staff’s forecasts”.

We should also note that the CPI weights are typically updated each year in the December quarter to ensure the weights used in the CPI basket reflect current household spending patterns. But the ABS said that with the continued increase in Australians holidaying overseas, a partial update of the CPI weights has been implemented in the September 2023 quarter. This partial update increases the weight for international holiday travel, with the weight for the other components in the basket adjusted to offset the increase in travel weights. International holiday travel and accommodation was down 3.4%. Convenient, when travel costs dropped, whilst others rose. Just saying.

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Digital Finance Analytics (DFA) Blog

Will The Inflation Shock Lead To An Interest Rate Hike?

00:00 / 00:12:54